Oil prices rose this Wednesday for the first time this week, following an announcement by US President Donald Trump that China could continue buying oil from Iran.
It’s been a tumultuous week for the industry since the US revealed last weekend that it had bombed three nuclear facilities in Iran. On Monday, the vegetable oils sector experienced widespread declines as the Middle East cooled and falling crude oil prices impacted commodity sentiment.
Earlier in the week, a ceasefire between Israel and Iran had appeared to be on shaky ground after both parties accused each other of violating the agreement. But with the situation now relatively calm, markets have cooled as Trump urged the parties to hold the ceasefire. The relative quiet is perhaps an indication that the industry is adapting to the current global instability caused by US tariffs and the general uncertain geopolitical landscape worldwide.
Here are three key takeaways following this week’s events:
1) Vegetable oils sector has calmed down but is still vulnerable to volatility
It’s been a turbulent week for the oil market, but the sector has been trying to regain its footing. The vegetable oils sector’s sensitivity to crude oil movements was apparent as the situation unfolded. This week, Brent crude oil price declined by nearly USD 9 per barrel to USD 67.48 per barrel as the market embraced a de-escalation in the Middle East. Although everything in the region appears calm for now, there will be concerns that the situation could flare up again and have a bullish impact on current price trends across energy-dependent agricultural commodities.
2) Increasing biofuel mandates globally: food vs fuel
The sensitivities between the energy markets, the shipping industry, and the commodity sector, especially for oil-linked goods, have played out significantly this week. Future knock-on effects could eventually manifest themselves in grocery inflation figures. Global mandates keep increasing not only in the EU and US, but also in traditional vegetable oil exporting countries such as Brazil, Argentina, and Indonesia. Such developments increase the impact of energy prices on vegetable oils as they are used to produce biofuels. This interconnectedness highlights the fragility of the situation.
3) The Strait of Hormuz situation remains precarious
The Strait of Hormuz has been talked about extensively in the last week. Around 20% of global oil and gas flow through this key “choke point” in the Gulf. Monday saw oil prices go down more than 7%, losing more than＄5 per barrel after Iran opted to attack a US military base in Qatar instead of targeting US ships or closing the Strait of Hormuz. Disrupting or Blocking the vessel traffic through this route would have severe global consequences, driving oil prices above USD 100 per barrel and affecting international trade. Some of the world’s biggest economies, like Japan, China, and India, are the top importers of crude oil running through this strait.
Read the full commodities weekly analysis here.
